Air India Order Accelerates Widebody Market Recovery
Sometimes the complexities of civil aircraft manufacturing are easy to illustrate. On Feb. 14, Air India announced one of the largest combined orders ever placed—for 470 Boeing and Airbus aircraft, including 70 widebodies. Just days earlier, the CEOs of Spirit Airlines and Frontier Airlines complained bitterly about the effects delivery delays and supplier shortfalls are having on their capacity plans and schedule reliability.
While there is huge demand for new aircraft—now also evident on the widebody side—the industry also faces severe manufacturing disruptions and the resulting effects on airline operations. The inability to meet customer demand, largely due to factors outside of OEMs’ control, is “enormously frustrating,” Airbus CEO Guillaume Faury said two days after the Air India announcement, at the company’s annual results press conference on Feb. 16. It is also a reality that will not go away anytime soon—and one that may broaden quickly to include long-haul aircraft.
Air India may be a special case in that it is trying—in one big step—to recapture market share lost over decades of mismanagement. But its order is further evidence that the widebody market is returning at almost the same speed as the narrowbody market, although it has been delayed by about a year. While Boeing has announced plans to boost production of the 787 after a long hiatus caused by in-house quality issues and a tedious one-by-one recertification process, the timing of 777X certification and the speed of an eventual production ramp-up are unclear.
Airbus is now reacting, too, planning to bring the A350 program from an average of five aircraft per month in 2022 to nine in 2025, an 80% increase. Even the relatively slow-selling A330neo will see substantial growth from three aircraft per month to four.
- Supply chain constraints force Airbus to slow narrowbody growth
- India expects bigger role as supplier, seeks aircraft final assembly
The factors behind the decisions are obvious. Following the removal of pandemic-related travel restrictions, demand for long-haul flying has come back strong as airlines seek to replace aging widebodies. Some are desperate enough to start the expensive process of reactivating A380s that were put into deep storage and were well on their way to permanent retirement.
Air India is not the only airline to commit to a large new fleet of widebodies: United Airlines recently bought 100 Boeing 787s; Riyadh International Airlines is expected to commit to a large number of long-haul aircraft in the coming months; Airbus has just reinstated an order for 23 A350s with Qatar Airways; and Emirates will start taking the first of 50 A350-900s on firm order, pushing for a stream of two aircraft per month.
The rush to order could become self-propagating, as other airlines try to place their own commitments before production is sold out for years to come. Some airlines also are pondering follow-on A350 orders, while the European Union Aviation Safety Agency certification conditions for the Boeing 777X and the timing of its service entry remain unclear.
Air India was lucky enough to secure six A350-900s originally earmarked for Aeroflot on relatively short notice. But it will have to wait many years for the 34 A350-1000s it also bought.
The A350-1000 has seen far fewer sales than the smaller -900, with 140 orders and a backlog of 71 aircraft before the Air India order. Many airlines that are considering the aircraft because of its greater capacity have stayed away due to concerns about the reliability of the Rolls-Royce Trent XWB-97 engines, issues that Faury asserts have been overcome. The Tata Group-owned airline also bought 20 Boeing 787s and 10 777Xs. Airbus Chief Commercial Officer Christian Scherer quipped at the earnings conference that “in such a humongous fleet, 10 aircraft of one type does not seem to make too much sense.”
Airbus has a backlog of 368 undelivered A350s, not counting the 63 additional aircraft for Air India and Qatar Airways. The A330neo backlog is smaller, at 195 aircraft, but Faury envisions a strong future for the aircraft. He hinted that Airbus is nearing a decision to launch a freighter version of the A330neo, now that the OEM has started development of the A350F.
Given Airbus’ recent experience with trying to expand narrowbody production, the supply chain’s ability to cope with higher widebody rates similarly comes into focus. Faury contended that Airbus is not facing the same supplier constraints on the widebody side, in part because the volumes are smaller.
Airbus also performed an in-depth analysis of supplier capabilities before committing to the higher rates. There have been strong concerns, however, about the financial state of Rolls-Royce, the exclusive manufacturer of engines for Airbus’ current widebody portfolio. In an internal memo, new Rolls CEO Tufan Erginbilgic recently described the company as a “burning platform” whose performance is “unsustainable.”
For Airbus, Rolls-Royce is too important to fail—it simply cannot allow that to happen. “We need all partners on board. Rolls-Royce is very close to us,” Faury said. “We count on them to come with us, and that is what they have committed to.”
Increasing A350 production rates also will provide a major boost to Airbus’ profits. The program is apparently near breakeven at five aircraft per month. “We see the A350 hitting around €1.8 billion [($1.9 billion) in operating profits] in 2026 on higher volume and better fixed costs, roughly in line with pre-COVID targets of a 15% margin,” Bank of America aerospace analyst Ron Epstein writes in a note to clients.
While Airbus is confident it can deliver on the new widebody production targets, management has finally realized that its narrowbody ambitions have been unrealistic. Faury pushed out the target of rate 75 for the A320neo family to 2026 from 2025, leaving uncertain when exactly it is to be reached. The company plans to produce 65 of the aircraft by the end of 2024 per month, and Faury predicted an average rate of around 50 aircraft per month for 2023. The guidance for the A220 remains unchanged at 14 aircraft per month “by the middle of the decade,” he said, which leaves more room for interpretation than a defined year would.
“2022 was a complex year,” Faury said. “Complexity and volatility are persisting. Disruption is still possible.” He said Airbus is “laser-focused on ramping up production,” after customer complaints—including the recent Spirit and Frontier public airings—about Airbus delays materially affecting their 2023 capacity. “It will take us two years to achieve what we had planned to do in one year,” Faury said.
The effects are being felt everywhere. Airbus told Frontier that nine A321neo deliveries previously expected this year will shift to 2024, “resulting in about 5% less capacity than we expected in 2023,” according to Daniel Shurz, the airline’s senior vice president for commercial. Rival low-cost carrier Spirit learned seven expected 2023 deliveries would be delayed until 2024, which may cascade some aircraft into 2025.
Late deliveries are not the only issues faced by some Airbus A320neo operators. Many are dealing with ongoing reliability problems of the Pratt & Whitney PW1100G geared turbofan (GTF). “Over the last six months, the GTF Neo engine has experienced diminished service availability, an issue that has been steadily increasing over this period,” Spirit CEO Ted Christie said Feb. 7. “Pratt & Whitney continues to struggle to support its worldwide fleet of Neo aircraft as [maintenance, repair and overhaul] capacity remains constrained, and turnaround times for engines in the shop have been nearly three times longer than the historical averages for Ceo engines.”
It is not surprising that for its big narrowbody order Air India has made a clear choice, opting for the CFM International Leap for both the 190 Boeing 737 MAXs and 220 A320neos it ordered—a combined 800 engines and a huge loss for Pratt. Air India apparently has not only taken into account the reliability issues experienced by operators worldwide, but perhaps especially those of local rival IndiGo in the difficult operating environment of India.
Given that Air India has agreed to spend multiple billions of dollars on new aircraft, India expects more work for its aerospace suppliers, particularly from Airbus. Tata Group Chairman Natarajan Chandrasekaran said the order was “a most significant event for the manufacturing sector in India.” He went as far as saying that it is “one of our ambitions to bring commercial aircraft manufacturing into the country at one point in the future.” By that he meant a final assembly line (FAL), not just component manufacturing.
As would also be expected, Airbus is not keen to put a FAL in India anytime soon. “We hope that the Indians are not obsessed with FALs” and recognize the value of becoming a bigger supplier, Scherer said. He pointed to the relatively small further value added in final assembly. Airbus wants to protect its position as system integrator, and thus he made clear that “no talks” are underway about a commercial FAL in India. Airbus Defense and Space has agreed to assemble C295 military transport aircraft in the country in cooperation with Tata.
While the details remain vague for the time being, Airbus will grow its existing training center in India, and suppliers in the country will gain a bigger role in maintenance, repair and overhaul and engineering.